Financial issues — such as finance, taxes, investment, shares, etc. — are among the topics that preoccupy most, if not all, people's minds. Muslims, like everyone else, care about their financial situations and well-being. What is different with Muslims is that they seek what is Islamically permissible and avoid what is not in this regard.

This folder presents a huge number of fatwas related to financial issues. It covers different aspects of this important topic such as zakah, taxes, charity, finance, banks, interest, transactions, contracts, partnership, and the like.

In so doing, it will help Muslims, and even non-Muslims, get themselves well-acquainted with Islam's stance on such serious issues.

Another core issue in the current practice of Capitalism which we have all seen especially in the last decade or so is the problem of over-production

Does Capitalism suffer from this disease which eventually leads to its decline?

(Pay now and pay next year) was a famous marketing slogan in recent years, and the number of cars, TV sets, washing machines ... etc which are to be sold always seem to exceed market demand

With Asian Tiggers, then China flooding markets with consumer good of good quality and reduced costs, this problem seems to have increased with time

Have a look at this analysis when you have time:

Dynamics of Overproduction

... there are too many goods chasing too few buyers, too much money chasing too few profitable investment outlays, too many workers chasing too few jobs; too many banks chasing too few impoverished savers and depositors. etc. This is true not only of capitalism’s current cyclical slump but applies to all facets of the crisis. The essence of the crisis of capitalism is overproduction. Or over-accumulation.

What is overproduction? What are its properties? At what stage in the cycle of capital-accumulation does it emerge? What is its cyclical duration? What is its role in capitalism’s business cycle? Milton Friedman , one of the major propagandists of free market fundamentalism and a vulgar apologist of capitalism , put this succinctly when he shoved aside the nostrum of social responsibility on the part of the capitalist: “ a company’s only responsibility is to increase profits for shareholders”. Capitalism defines the relationship between a possessing / exploiting class whose incomes are profits, dividends and rents, and an exploited propertyless class whose income is wages.

It defines the relationship between the oppressor and the oppressed. Hence capitalism’s overriding objective, its alpha and omega, and the masters of capital is not the provision of goods and services to the workers it exploits. That is a surface phenomenon. That is a fetishism. The goal of capital accumulation is to expand and ensure an ever rising mass of profits for a class of propertied owners. The overriding goal is profit and profit maximization. Overproduction is thus not an aberration of the system but inherent in its operation. And this goes back to the beginnings of capitalism’s first Great Depression of 1873 ...

A US bank has been awarded for offering Shari`ah-compliant banking products to help American Muslims fulfill their cherished dream of owning a house.

"I never thought I'd be involved in Islamic banking because I'd never even heard of it," Stephen L. Ranzini, President of the Michigan-based University Islamic Financial Corporation, told The New York Times on Saturday, March 7.

"And it's been a stretch to learn it, succeed at it and make it work."

The bank has received the American Bankers Association's 2009 Community Bank Award largely for helping raise homeownership category among US Muslims.

"But you feel best about the things that were hardest to do," said Ranzini, 43.

Muslims are much less likely to be homeowners partially due to the fact that they do not benefit from the conventional bank's mortgage loans as Islam forbids followers from usury, receiving or paying interest on loans.

In December 2005, the University Bank launched an entire subsidiary to help Muslim customers through Shari`ah-compliant products to help them own houses.

So far, it has done nearly $80 million in "mortgage-alternative" financing for residential and commercial real estate in 15 states.

While many conventional banks went bankrupt over the worsening global financial crisis, the University Bank this week recorded one of its best periods ever.

It completed 11 home sales, more than twice the weekly average, to observant Muslim customers, and pushed four more closings into next week.

For many observers, the University Bank’s booming Shari`ah-compliant products are only part of a national trend.

"It's part of this religious revival, this return to roots, you see taking place not only in Islam but in many faiths," said Isam Salah, an expert in Islamic financing at the international law firm King & Spalding.

"And as people began to see the feasibility of Islamic financing, you had smart bankers saying: 'There are seven million Muslims in the US There’s a niche market no one is serving, and I can do it.' "

Following the suit of the University Bank, Devon Bank in Chicago and Guidance Residential in Reston, Virginia, are also offering Islamically-accepted mortgage alternatives.

Thoughts on the Financial Crisis

The entire world is threatened by the recent financial crisis, even those countries that never enjoyed the direct benefits of credit

Structured finance, by definition, is vulnerable to asset-bubbles because it explicitly provides credit based on the perceived value of the collateral. If collateral is overvalued because of a bubble, then too much credit will be provided against that collateral, whether in the conventional system or the Islamic one. This is not the time for finger-pointing, or worse, some kind of schadenfreude (glee at another’s misfortune).

The entire world is threatened by this crisis, even those countries that never enjoyed the direct benefits on the upside of the US housing/credit/consumption bubble. Hopefully Muslim countries, along with all other countries of the world, can cooperate in fixing the global weaknesses that led to this crisis. While no one can know for sure what changes will be made in the global financial system, there can be little doubt that by the time of the next US presidential election in 2012, the global economic system will have undergone substantial changes, hopefully for the better

Despite slowing down, the top ten Islamic banks continued to show encouraging performance by recording an average annual growth of around 30 percent for 2008.

While conventional banks consolidate and retrench workers, Islamic banks particularly in the Gulf Coopeartion Council countries continue to expand and recruit new workers.

The resilience of the Islamic financial institutions to the current financial shocks, as well as their robust growth have led many quarters to conclude that Islamic banking could provide a solution to the current financial ills and be a viable alternative to the current financial system.

The current crisis seems to highlight the weaknesses of the conventional banking and finance philosophy on which the global financial system is built upon.

The conventional system allows multiple debt creation on a particular asset without a real underlying transaction made possible by credit default swap.

Quite the contrary, Islamic finance requires that financial dealings must be backed by real assets and be in line with the Islamic law, Shariah.

Generally, the principles upon which Islamic banking system is built on ensure the element of certainty and stability in financial dealings.

In particular, the requirements that the financial dealings must be free from Riba (interest), gharar (uncertainty), and maysir (gambling) ensure that the elements of exploitation and excessive speculation are avoided.

To ensure fairness and justice, financial dealings in the Islamic context must observe the concept of iwad (equal counter-value, which comprises of work effort, risk assumption, and product liability).

There are various supervisory authorities that are committed to oversee the overall compliancy of the financial instruments offered by the Islamic financial institutions, such as the Shariah supervisory board, as well as national regulatory authorities.

More importantly, financial dealings in Islamic banking and finance are guided by the ultimate objective of achieving the ideals of equitable justice where priority is given to equity-based financing rather than debt-based financing.

The conventional financial system which focuses largely on debt-based financing has resulted in concentration of wealth circulated largely among the deemed credit-worthy corporations and individuals.

In the Islamic economy, priority should be given to transactions that can benefit the society at large, rather than just the already wealthy corporations, so that wealth can be more widely circulated.

As such, the concept of equity-based financing along with its profit-sharing element is again another built-in stability aspect of the Islamic financial system.

The joint-venture nature in most equity based financing such as musharakah ( equal sharing) requires active participation from both the financier and the borrower to achieve the best outcome of a business venture.

Equity-based financing distributes risk and liability to both the lenders and borrowers so as to justify the return to both sides of the transacting parties.

In the end, this would influence the allocation of wealth and resources in the economy.

While conventional banks worldwide are nursing losses of more than $400 billion from the credit crisis, Islamic banks are virtually unscathed

I recently listened to a lecture called "Lets Buy a House Islamically" by Ghassan Barqawi (http://www.hoor-al-ayn.com/lectures/).

He spoke a great deal about how most of these Islamic Banks offer Islamic Mortgages which actually involve interest, but only use different names for it. He showed how this was present in Lariba and guidance residential.

I have not dealt with them personally, and as long as they have a trustworthy committe of Shari'a scholars who supervise the validity of their contracts, it's their own responsibility if something is not 100% compatible with Islamic Law.

These principles are from the web site of Lariba:

1- We do not Rent Money. We approach each transaction as an investment (using the Lease-to-purchase Model) instead of Lending. We advise you as to whether the transaction is a good investment or it is better to rent.

2- We never start from an interest rate to calculate your payment. Your payment is based on the market rental value of the property you are seeking to finance. The rental value is determined by mutual agreement between you and us.

3- We work with clients in a humane and fair way (Tarahum) in times of trouble.

There is a very thin line between lawful finance and riba-based finance in trade, and the main difference is that there should be a real product being exchanged, not just money lent and later money returned with interest

Allah (SWT) says in The Qur'an:

That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest

(2:275)

What Islam does is makes the financial system a reflection of the real economy, and this can only be done by financing real business transactions, where real products or assets are being exchanged, not interest-based "virtual" and "future" speculative transactions

There is a big difference between the two systems: one is sustainable, while the other is not, as we have witnessed in the current global financial crisis

Islam is not an ascetic religion and does not aim at depriving Muslims of the good things that God has provided. It takes a positive view of life considering humans not as born sinners eternally condemned for their original sin, but as vicegerents of God for whom everything on earth has been created.

Virtue in Islam, therefore lies not in shunning the bounties of God, but in enjoying them within the framework of the values for "righteous living" through which Islam seeks to promote human welfare.

The values for righteous living that Islam propagates permeate all sectors of human activity. There is no strictly mundane sector of life according to Islam. Action in every field of human activity, including the economic, is spiritual provided it is in harmony with the goals and values of Islam.

It is really these goals and values that determine the nature of the economic system of Islam. A proper understanding of these is therefore essential for a better perspective of the economic system of Islam. These goals and values are:

a. Economic well-being and the moral norms of Islam;

b. Universal brotherhood and justice;

c. Equitable distribution of income; and

d. Freedom of the individual within the context of social welfare.

This list of goals is by no means complete but should provide a sufficient framework for discussing and elaborating the Islamic economic system and highlighting those characteristics which distinguish the Islamic system from the two prevalent systems, capitalism and socialism

Anyways, a close friend of mine is going to University of Chicago to study both economics and mathematics. For those of you unfamiliar with University of Chicago, they are one of the most significant developers of economic theory, with the Chicagoan economics being one of the three major philosophical viewpoints.

I've told him many times how much I'd love it if he can, after becoming a big-shot in Western economics, be able to examine Islamic economics and see how it would change the equation.

The major differences would stem from the laws of being unable to sell what you don't own (so, no short-sales of stock, no prospecting, etc.) and being unable to work with interest (which would of course totally change the entire nature of the economy, since Capitalism is based around banks lending capital for businesses to invest).

Regardless, Islamic economics, is (of course) perfect; but I truly believe that with advanced understanding that will become apparent. Islam essentially offers a laissez-faire system in which economic crimes are met with harsh punishments (preventing fraud, theft, scams, political corruption, encouraging honesty, trust, and competition), taxation is extremely low (with Islam only mandating the voluntary 2% tax), and markets are regulated against only the most fundamental problem causers (like, interest and prospecting). Sounds to me like an economist's dream.

This recent article includes ideas formulated by an expert in Islamic finance, Dr. Monzer Kahf, to help overcome the current financial crisis:

The Global Financial Crisis

Ideas for Long Term Solutions: Short Notes

Short-Term Solutions

These are by all means usurious solutions. Rather, they cannot be but usurious, as they stem from the capitalist milieu and mentality.

They are as follows:

Rescuing the failing banks that can be rescued, with particular focus on retail banks, so that they can resume giving short-term loans to companies, in an attempt to alleviate the financial crisis in the production sector.

Applying income-increasing programs, particularly for the middle class, so as to enable debtors to overcome the crisis of bought houses and also to solve the problem of the diminishing demand for long-lived consumer goods, thus sending necessary indications to the production institutions that they should not decrease their productivity or continue to lay off workers. Furthermore, part of the solution focuses on increasing the spending on service sectors, including education and health sectors, which have large numbers of workers.

Stopping the increase in installments and interest rates for buyers of houses with changing interest rates. Interests should be decreased or canceled, even if for a short period of time, and respite should be granted to the debtors who took house loans. This has to be done through government decisions enabling the owners to continue their payments and preventing their loans from turning into bad debts. Accordingly, the house-market prices would enjoy stability and cease declining, and the process of restoring markets of real production to health would soon begin.

Avoiding resorting to an increase in public debt in a way that would aggravate the exhaustion of the market liquidity. Instead, taxes imposed on the wealthy — especially those who benefited from the immense military spending — should be increased.

Dealing in derivatives should be stopped, and what remains of them have to be gradually dissolved, particularly credit derivatives

Long-Term Solutions

These have to be based on reorganizing the financial markets for the rectification of their deficiency. The solutions include:

Laying down new rules aimed at curbing the expansion in finance beyond the capacity of the receivers of funds, particularly in the real estate market and with regard to the use of credit cards. These rules should curb the greed of retail finance banks and companies, in an attempt to force them to abide by strict standards. These later would hold these banks and companies responsible for the results of their leniency in alluring consumers to contracts whose burdens go beyond the consumers' capacity, and would prevent them from achieving gains at the expense of consumers and semi-wholesale institutions.

Reconsidering the systems of money markets with the aim of banning orminimizing the deals based on mere speculations, given the fact that they produce no added value. Such deals are known as the "deals whose total equals zero." These include the following deals:

Limiting securitization (even through successive stages) until securitization of debts is completely banned and only taskik (financial documentation) is used. In taskik, the sukuk (financial documents) represent real assets excepting debts and money.

Reconsidering the laws that permit circulation of and trade in debts, given that these processes do not create an added value. Strict restrictions should be in place for banning the discounting and rediscounting of debts.

Developing institutional funding from banks and non institutional funding from the market. This is to be bound by two main constraints:

Establishing a direct connection with the real market of services and goods, so that funding in society does not go down the drain or transform into financial accumulations that go beyond the real market and turn away from it.

Giving precedence to moral criteria in funding over the criteria of mere gains; that is, funding has to be withheld from goods and services that are unwanted by society or harmful to its environment and future.

And finally, respect ought to be shown to individual ownership as a fundamental right that is granted to humans by the Creator of the heavens and the earth. It is not proper for any individual to cede this right or any of its requirements, such as the right to free benefiting from one's own possessions in all ways of benefiting , as well as the right to entitlement and so on, except if the individual wants to give voluntarily and consciously. It should also be stressed that contractual increase in debts and loans for deferred payment is an unjust increase that is wrongfully taken from the debtor's money whilst there should be no increase in the creditor's possessions that justifies it. Hence, contractual increase in debts and loans is not compatible with the requirements of the rights to property and entitlement. Debts should not be susceptible to increase, because no added value is generated from them

If done at state and federal levels, it can save the economy from Wall Street's predation - by removing the debt overhang through debt write-downs as well as funding sustainable, inflation-free prosperity. It's not a pipe dream. It's real. It happened before and can again. Short of that, according to Hudson:

"debt service will (keep) crowd(ing) out spending on goods and services and there will be no recovery. Debt deflation will drag the economy down while assets are transferred further into the hands of the wealthiest 10% of the population (mainly the top 1%), operating via the financial sector."

Eventually the economy will collapse, but Wall Street will profit hugely - aided and abetted by corrupted public officials allied with the private parasitic Federal Reserve turning America into what Hudson calls a "zombie economy" and banana republic.

What Works for North Dakota Can Work for the Other States, America, and Everywhere

Strangely enough, ending debt service is the exact cure mentioned in The Qur'an when a severe depression is mentioned to resemble war, as the cure in verse (2:278-280) is to only maintain the principal of the loan as a liability, and to abolish interest payments

O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.

And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal – [thus] you do no wrong, nor are you wronged

And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you give [from your right as] charity, then it is better for you, if you only knew

ECONOMIC SOLUTIONS FROM ISLAMIC FINANCE:

POSITION STATEMENT OF THE INTERNATIONAL ASSOCIATION FOR ISLAMIC ECONOMICS

The current global financial crisis has called the attention of world leaders and financial decision makers to seriously consider building a new world financial system. We believe that Islamic economics has much to offer for building a more just and stable market system that encourages real wealth creation and contains market fluctuations.

The current crisis stemmed from excessive indebtedness resting on a relatively small base of equity and real wealth, “the inverted debt pyramid”. A significant chunk of finance became merely the selling present for future money. Besides, poor regulations have encouraged over indebtedness.

To build a sustainable system, debt must grow in tandem with real (as opposed to financial) wealth; leverage must be capped by productivity potentials. This allows for real wealth to grow without being hurdled with too heavy debt.

Common economic sense suggests discouraging debt financing and encouraging benign alternatives. However, the exact opposite (e.g. preferential tax treatment of personal and corporate debt) is still the rule.

The government in Scotland is contemplating an innovative scheme on using Shari`ah-compliant investments to address the housing dilemmas Scots are facing in the ongoing severe recession.

"I would be happy to sit down and talk to them about their ideas," Housing Minister Alex Neil told the Sunday Times on July 12.

Officials from the Islamic Finance Council (IFC), a Scotland-based body representing Islamic financial interests worldwide, will discuss with Neil how Islamic finance could be used to help plug the funding gap for new social housing in the European country.

Under an IFC plan, Shari`ah-compliant finance can fund new shared-ownership homes with backing from the government.

But unlike those with conventional mortgages, householders would be largely insulated from negative equity ...............

You cannot post new topics in this forumYou cannot reply to topics in this forumYou cannot delete your posts in this forumYou cannot edit your posts in this forumYou cannot create polls in this forumYou cannot vote in polls in this forum